When it comes to money, we’re stupider than we think

I’ll get to my other good customer service story later. First, a bit of personal finance because it’s big-time on my brain as I’m trying to prepare to purchase a house.

I get some great money tips from Vanguard, my 401k company. (If you don’t have a retirement fund, get one. Your future self will thank you.)

One recent e-mail particularly caught my eye: Why so many Americans are broke. Go read that article. Now. It’s ok, I’ll wait for you to come back.

Was your mind just blown? People want to save $5 on something that costs $15 but not on something that costs $125? People are willing to agree to a higher cost if they pay with credit cards than with cash? People will spend more of a windfall if it’s perceived as a ‘bonus’ rather than ‘rebate’?

The reason my mind was blown is because I think I’m pretty dang smart when it comes to money, but I know I’ve fallen into all of these traps before. Hell, as the article points out, even Ivy league smarties failed these tests.

Modern Friends, we young adults are horrible with money. We spend way too much on clothes and entertainment while hardly thinking about savings, frugality and the future. I’m just as guilty as the next person, but seriously, we need to be smarter. Being smart with money will make your life easier. Notice I didn’t say being richer will make your life easier. It’s all about managing what you have.

Here are tips from the article on how we can be more financially savvy:

  1. Set up automatic contributions to a savings account. It’s hard to save because it requires willpower. That’s why Vyse suggests making the saving automatic. So even if you do nothing, money is set aside for the emergencies, such as unexpected car bills.
  2. Build in delays to buying. You may want a new high-definition TV, but make it a rule not to order any nonessential item for at least a day or two.
  3. Use windfalls wisely. When unexpected money lands in your lap, don’t let it blow back out of your life just as randomly. Pay off debt with a windfall rather than buying something new, Vyse suggests. If you have no debt, contribute any windfalls to savings.
  4. Pay by cash or check. If your credit card bills have you over a barrel, Vyse advises carrying cash and your checkbook.
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9 Responses to When it comes to money, we’re stupider than we think

  1. Noelle says:

    I wish there was more to do when one is just making ends meet. I'm not worried about buying a big screen TV, I'm worried about paying for groceries.

    And it is funny, the lenths we'll go to save money on small items. I read about that in "Predictably Irrational," which is a fantastic book about the irrational things we all do, including the way we handle money.

  2. courtney says:

    That is a really interesting article. I'd love to say that anyone who'd make those money mistakes is an idiot, but I could see myself falling into them too. For example, when I bought my car a few years ago, the salesman urged me to buy the $200 Honda floormats, and his logic was that I was already spending $16K, so what's another $200? It made sense to me for about three seconds, then fortunately I realized that $200 was most of a monthly payment at the time, so I didn't get them. $200 is $200, whether it's expressed as a fraction of $16K or not.

    Have you found a house to buy yet? Exciting!

  3. Herman says:

    Great post!

  4. Herman says:

    Also, totally jealous that you have Vanguard for your 401(k).

  5. alexa - cleveland's a plum says:

    amen sister!!!

    i need help, so much help. and i've been trying to do these tips for awhile now.

    i.e. i haven't spent money on a credit card since august. wellll maybe a little during christmas, but i HAD to. ha.

  6. Jen says:

    The problem with making savings automatic, is that now it's just as easy to move that money in your savings account over to your checking account with the click of the mouse.

    I try not to do it, yet it's still to easy to resist the call of extravagance.

  7. Bayjb says:

    Great tips. Any money I get (bonus, tax return, etc.) always goes half in savings and half for fun. I follow a lot of this stuff already but definitely need to be better.

  8. Allison M. says:

    Great tips, and I try to pay cash or give myself limits I can spend on groceries, personal items, etc.

    I try to throw as much extra cash as I can on my credit cards because those need to go away already!

    We young ones don't know a lot when it comes to money. Or maybe I don't know enough.

  9. Allie says:

    That was really interesting! The delay on big purchases thing helps me a lot. Actually, it even helps me on little purchases.

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